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Mortgage Market Update from Calculated Risk

Calculated Risk is a blog that basically aggregates and analyzes up-to-date financial and economic data as it is released, particularly that which applies to the housing market.  The number of economic and financial metrics that are available on the internet is useful in some contexts but often feels more like a confusing, frustrating glut of information that renders answering a pithy question like “What is the rate of foreclosures like in the current housing market relative to pre-crisis times?” difficult to answer.  Trying to get beyond this issue is where I’ve found Calculated Risk really useful – relevant date for a particular issue is laid out, cited, and analyzed clearly in an effective and timely fashion.

I was curious about the housing market after meeting a seemingly overzealous realtor on the train, and here’s what I found via calculated risk.

Delinquencies 

At the end of Q3 2014, the delinquency rate on 1 to 4 unit residential properties was 5.85% of all loans outstanding, down for the 6th consecutive quarter and the lowest rate since the end of 2007.  The delinquency rate does not include loans in foreclosure, though they as well are at their lowest rate since the 4th quarter of ’07 at just under 2.5%.  Though foreclosures have come down from the stratospheric levels reached during their peak in 2010, they’re still more common than they were before the crisis.  Mortgages that are 30 and 60 days past due, on the other hand, have returned to approximately pre-crisis levels.  

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Mortgage Rates 

30-year fixed rate mortgage (FRM) rates are down 1 basis point (.01) from last week at 4.01%, roughly the same level as 2011 but lower than last year’s 4.46%.  Obviously there isn’t “one” mortgage rate – the rate we’re talking about here is the one that applies to the most creditworthy borrowers in the best scenario possibly to receive a loan from the bank.  Though all other mortgages are based on this rate, it’s not exactly a rate one should expect to be offered by a bank.

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The relatively small difference between a mortgage quoted at 4.01% and 4.45% has a surprisingly large financial impact on the 30 year FRM.  A $250,000, 30-yr. FRM at a 4.01% nominal annual rate compounded monthly (as is typically the case) necessitates a monthly payment of $1,194.98, whereas the same mortgage at 4.45% would require a monthly payment of $1,259.30.  With the higher payment, the borrower pays an additional $23,155 in interest over the term of the mortgage.

Another post talks about subdued refinancing activity, which I’d guess is the result of relatively static mortgage rates as it’s generally only financially viable to refinance when rates have changed significantly.  Banks could also be offering fewer refinancing options after the crisis, a reasonable assumption given their cautious resumption of lending post-crisis and the role that refinancing options played in exacerbating the housing bubble.  I’m purely speculating, though, and I’ll look into this more later.

Residential Prices

A widespread slowdown in the rate of housing price increases has been steadily taking hold since February of this year.  Residential prices aren’t decreasing, they’re just rising at a slower and slower rate each month, and now sit 20% below their 2006 peak.  This is not to say we should expect or even wish that housing prices should resume at 2006 levels, as such was clearly unsustainable – furthermore, though slow relative to preceding months, the (annualized) 6%+ experienced last month is still pretty strong and obviously outpaces inflation.

 

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